For investors, this presents a potential opportunity for yield and diversification through private credit. But what is private credit, and what should investors look for?
 

The basics

Private credit refers to loans made by non-bank entities.  Private credit funds pool capital from investors and deploy it into various lending opportunities. 

The income generated from loan interest forms the yield that is distributed to investors.
 

Some things never change

Investing always comes back to three core principles: 

1. What are the assets?

‘What are the assets?’ is an important question when choosing private-credit assets. In La Trobe’s view, a pure-play strategy [that focuses exclusively on a single asset class] from a transparent manager is powerful.  It counters ‘mandate creep’, where funds are deployed into assets which don’t align to stated objectives.  
 

2. How is the fund structured?

Private credit assets are by definition, private and often bespoke contracts, and are less liquid than publicly traded bonds.  Ensuring a clear, easy-to-understand strategy which addresses potential liquidity mismatches is important.
 

3. Who is the manager?

Managing any type of credit investment is a real and specialised skill.  With new managers entering the market every day, looking for groups with proven competence across multiple cycles and the expertise to manage the assets if something goes wrong is also crucial.

Transparency

Private credit comes in many shapes and sizes, so it’s important to know exactly what you’re investing into.  

In La Trobe’s view, investors should consider the differing investment profiles offered from lending for non-bank mortgage finance, loans to larger corporates, right through to niche offerings at the speculative end of the risk spectrum.  

The assets of a portfolio drive its performance, so it’s important to know what’s ‘under the hood’.

According to La Trobe, investors should only invest in private credit funds which readily disclose key criteria, including:

• Use of funds: How your funds will be used – exactly what types of assets you’re investing into.
  
• Diversification metrics: Number of loans, loan sizes, sectors, geographic spread, interest rate types and spreads.
  
• Credit quality: Clear and robust framework applied by the manager to accurately identify and price credit risk.
  
• Valuation policy:  Independent, disciplined valuation policies designed to ensure the value of a private credit investment is accurately identified.
  
• Performance: How are the assets in the portfolio performing and what practices is the manager employing to manage underperforming assets?

Benefits of private credit

Private credit can potentially provide:

• Higher yields across the economic cycle: US direct lending has averaged about 10.1% over the past decade, compared to 1.9% for Treasuries and 6.5% for high-yield bonds, according to JP Morgan Asset Management.
• Diversification: In La Trobe’s view, private credit provides lower correlation to traditional asset classes, meaning it can potentially offer local and international diversification opportunities. [Correlation here refers to how closely asset classes move together. Highly correlated assets would rise and fall together].
• Income: Regular payments can potentially provide consistent cash flows for investors.
• Reduced volatility: In La Trobe’s view, private credit can be less volatile than equities, though should not be considered risk-free.

Key risks 

Key risks of private credit include: 

• Credit Risk if a borrower defaults on their loan.
• Liquidity Risk, as private credit is not traded in public markets.
• Valuation Risk, as private credit assets are not priced throughout the day like a share.
• Macroeconomic Risk if a spike in interest rates and economic downturn leads to an increase in loan defaults.
• Manager Risk is another consideration for investors in private credit funds.

Where private credit fits in portfolios

In La Trobe’s view, private credit is increasingly viewed as a complement to traditional fixed income and equity allocations.

In the context of the classic 60/40 portfolio (growth/defensive assets), private credit may offer diversification and yield enhancement. 

In La Trobe’s view, the low correlation of private credits to public markets (such as shares) may make private credit attractive during periods of volatility. 

One potential use is investors investing in private credit to reduce reliance on dividend-paying equities and government bonds.

Accessing Private Credit via ASX

A range of private credit investments exist with well-known structures, including:

• Listed Investment Companies (LICs) 
• Listed Investment Trusts (LITs)

Private Credit in 2025

In La Trobe’s view, private credit has evolved into a mainstream investment option and a valuable complement to traditional income sources.  

But not all private credit providers are created equal.  Against all the benefits, the quality of underwriting, risk management, and transparency can vary significantly between managers.  

According to La Trobe, investors should always be cautious and selective, prioritising managers who demonstrate consistency, clarity, and a commitment to remaining careful stewards of investor’s capital.